Question

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 810,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 12%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company’s common stock at the end of the year was $18. All of the company’s sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	2,546		$	2,770
Accounts receivable, net		12,400			9,150
Inventory		9,750			8,240
Prepaid expenses		1,810			2,120
Total current assets		26,506			22,280
Property and equipment:
Land		6,100			6,100
Buildings and equipment, net		19,300			19,100
Total property and equipment		25,400			25,200
Total assets	$	51,906		$	47,480
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	9,600		$	8,350
Accrued liabilities		620			750
Notes payable, short term		310			310
Total current liabilities		10,530			9,410
Long-term liabilities:
Bonds payable		6,250			6,250
Total liabilities		16,780			15,660
Stockholders' equity:
Common stock		810			810
Additional paid-in capital		4,250			4,250
Total paid-in capital		5,060			5,060
Retained earnings		30,066			26,760
Total stockholders' equity		35,126			31,820
Total liabilities and stockholders' equity	$	51,906		$	47,480

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	80,000		$	75,000
Cost of goods sold		52,500			48,500
Gross margin		27,500			26,500
Selling and administrative expenses:
Selling expenses		8,600			8,100
Administrative expenses		12,100			11,100
Total selling and administrative expenses		20,700			19,200
Net operating income		6,800			7,300
Interest expense		750			750
Net income before taxes		6,050			6,550
Income taxes		2,420			2,620
Net income		3,630			3,930
Dividends to common stockholders		324			648
Net income added to retained earnings		3,306			3,282
Beginning retained earnings		26,760			23,478
Ending retained earnings	$	30,066		$	26,760

Required:

Compute the following financial data for this year:

1.	Gross margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

      

2.	Net profit margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

        

3.	Return on total assets. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

       

4.	Return on equity. (Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

       

Answer 1

1. Gross Margin = Gross Profit/Total Sales Revenue = $27,500/$80,000 = 0.34375 pr 34.375%

2. Net Profit Margin = Net Profit/Sales Revenue = $6,800/$80,000 = 0.085 or 8.5%

3. Return on Total Assets = EBIT/Average Total Assets

EBIT = $6,800

Average Total Assets = (Total Assets This year + Total Assets last year)/2 = ($51,906+$47,480)/2 = $49,693

Return on Total Assets = $6,800/$49,693 = 0.13684 or 13.684%

4. Return on Equity = Net Income/Average Shareholders equity

Net Income = $3,306

Average Shareholders Equity = (Equity this year+equity last year)/2 = ($35,126+$31,820)/2 = $33,473

Return on Equity = $3,306/$33,473 = 0.098766 = 9.88%